The Pound Euro (GBP/EUR) exchange rate fell off a cliff this week, with the pairing plunging to a two-month low as UK economic angst sapped Sterling sentiment. 

Pound nosedives amidst UK economic woes 

The GBP/EUR exchange rate initially strengthened at the start of this week, thanks to tailwinds stemming from expectations that the Bank of England (BoE) could start hiking interest rates as early as March 2022. 

However, the Pound then suffered a stunning fall from grace on Tuesday, with the GBP/EUR exchange rate plunging around 1% to strike a two-month low. 

This selloff was triggered by growing concerns over the resilience of the UK’s economic recovery, with these worries being exacerbated by fuel shortages throughout the country. 

However, the Pound was able to recoup some of its losses in the latter half of the week, with the rebound being attributed to end-of-quarter flows as well as a stronger-than-expected domestic GDP print. 

Meanwhile the Euro opened this week’s session on the back foot, as a very close German federal election stoked the prospect of lengthy coalition talks, which could result in prolonged political uncertainty. 

However, this quickly faded leaving the Euro able to take advantage of the broad pullback in the Pound on Tuesday, with these gains then being reinforced in the mid-week as Eurozone economic sentiment printed higher than expected in September. 

The Euro then faltered again at the end of the week as a sharper-than-expected Inflation reading gave rise to worries over rising costs for consumers whilst the European Central Bank (ECB) is reluctant to tighten monetary policy. 

German industrial data in the spotlight  

Looking ahead to next week’s session, the publication of Germany’s latest industrial data could act as a key catalyst of movement in the GBP/EUR exchange rate. 

Economists are forecasting bout factory orders and industrial production will have slumped in August, potentially weighing on the Euro for fears that a key part of Germany’s economy will have stalled. 

Meanwhile, in the absence of any major UK data releases, it’s likely that UK economic headlines could continue to determine the direction of the Pound. 

With concerns over the trajectory of the UK economy likely to persist into next week, this could see the GBP/EUR exchange rate test new multi-month lows. 

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